How to Decode the Credit Score Factors

Your credit score provides banks, potential employers or future landlords a snapshot look at your level of financial trustworthiness based on your credit report. Credit scores, also called FICO scores after the Fair Isaac Company, assign a single, three-digit number to your current financial picture that ranges from 350 to 850, with 850 reflecting the best money management. While a credit score may seem like a magic number, you can decode the credit score factors to understand what your score currently says about you.

Instructions

1

Identify how the credit score is divided across a number of factors. Payment history makes up 35 percent of the score, amounts owed equal 30 percent, 15 percent is based on your length of credit history, while new credit and the types of credit used each represent 10 percent of the score.

2

Understand payment history to mean both the positives and negatives of your past payment behavior to any creditor. This includes when payments were late, how often, how many times, how long ago and if the past due items went to collections, as well as any amounts still owed on delinquent items. History also means bankruptcy, liens against you, law suits and how many accounts were positively settled "as agreed" through regular payment methods.

3

Think about amounts owed as just that -- what you owe on the loans, lines of credit or credit cards you currently have. Amounts owed also considers the number of accounts open, what types of accounts they are, such as all credit cards, as well as how many accounts have balances. On accounts with balances, the score examines the amount of balance compared to the total credit limit or original loan amount.

4

Look at your length of credit history to mean how long you've had a relationship with each creditor, bank or business. The age of an account tells you if the relationship is brand new, or more established and shows if you opened a large amount of accounts in any one time. The score also looks to see the last time you used your account, so a credit card with no balance that hasn't been used in years may not look as good as one that is used for occasional purchases.

5

Know that new credit reflects in your score if you've recently opened a number of accounts and what kinds of accounts these are. New credit also takes into account how many credit inquiries you've had recently and if you shopped around or did all of these inquiries in a relatively short period of time, or if you've been on the hunt for credit for a while.

6

Realize that types of credit used simply provides a basic view of what kinds of accounts you have and how many of them are there. A person with solely credit cards may not score as favorably as a person with a credit card, a student loan and a car loan, provided the payments are up to date and balances aren't close to the limit.

7

Request a copy of your credit report, which you can get free once a year (see Resources), and look over the report with each of the credit score factors in mind to see where you can make changes in your payment patterns and reduce debts.